A new union has formed for Indigenous people involved in a controversial work-for-the-dole scheme.

The Community Development Programme (CDP) requires jobless people to work 25 hours a week to receive their welfare payments, which critics say opens a “pool of free labour” for businesses, and denies basic workplace rights.

Most of the 30,000 people involved in the CDP are Aboriginal.

The First Nations Workers' Alliance has been set up by the Australian Council of Trade Unions (ACTU) to represent CDP participants.

“We do believe that it's racially discriminatory,” said ACTU spokesperson Kara Keys.

“It is hard to mount the argument [that CDP is not racist] when … above 80 per cent of workers in this scheme are Aboriginal and/or Torres Strait Islander.”

The new union is free for Indigenous CDP participants, and can be supported by workers who are members of other unions.

CDP participants are given hygiene classes, as well as lessons in t-shirt dying and art making, but the most controversial part is a six-month work placement that the Government describes as a “long-term work experience opportunity”.

But missing work or turning up late carries harsh penalties, and with people in the scheme already facing strong financial hardship, it has been blamed for driving up hunger and poverty in remote communities.

Ms Keys said the Government had simply “created a pool of free labour for employers to access”.

“But those employers have none of the responsibilities that we would normally expect,” she said.

“They don't have any annual leave [or] sick leave.

“They are also specifically excluded from things like federal occupational health and safety and workers' compensation legislation.

“We have put together the First Nations Workers' Alliance to be a collective voice for the workers in this scheme.”

Indigenous Affairs Minister Nigel Scullion has rejected the criticism.

“The ACTU is simply continuing its hypocritical and political campaign,” he told the ABC.

“As the minister has said on numerous occasions … the CDP is not discriminatory and applies to all jobseekers living in remote Australia.

“This is simply a political campaign motivated by the self-interest of the union movement rather than the best interests of remote communities that have called for an end to passive welfare and better engagement in communities.”